Any real estate investor knows how difficult it is to price their rental properties. Can Zillow rent calculator help?
Table of Contents
- What Is Zillow Rent Calculator?
- How Zillow Calculates the Rent
- Is Zillow Rent Calculator Accurate?
- Other Ways to Determine Your Monthly Rental Income
- To Recap
The renters market is becoming just as aggressive as the buyer’s market, and investors need to be up-to-date on how to price their properties accordingly. With bidding wars happening left and right, it is essential to know how to price your rental. This article will look at some tools investors can use to help price their rental properties and be competitive in today’s housing market.
What Is Zillow Rent Calculator?
Whether you are an aspiring real estate investor or have been in the industry for years, you likely know of the real estate platform, Zillow. While you might think it is just a site to look through available houses for sale or rent on the housing market, Zillow actually does much more.
One of the tools the website offers that you might not be familiar with is its Zillow rent estimate calculator. This tool is also referred to as Zestimate. Basically, this service helps investors, or anyone looking to rent out a property, determine what they should ask for their rental price. Typically this is a monthly cost your renters pay for however long their lease is.
To help come up with these rental predictions, the Zillow.com rent calculator uses comps and public data to estimate how much your rental property is worth. The goal is to help their users save time rather than try to find all of this data themselves.
If you are an investor looking to use the Zillow calculator rent to come up with a possible rental price, it is important to know that this tool does not account for certain features of the property. While the tool does acknowledge property value, they don’t take into consideration the condition of the property or the location of the home. This means one property in the middle of nowhere and a similar one in the city could be priced the same when one of them is worth much more.
How Zillow Calculates the Rent
The Zillow monthly rent calculator works by collecting information from public records, data, and tax records to produce a potential number that will theoretically be competitive in the housing market. This information is run through their algorithm to generate a rental price.
On top of access to public information, the rent calculator also considers user-submitted information. This will also affect what value the application generates for your property value price.
For real estate investing, it is essential to price your investment property competitively in the housing market. Many investors find tools such as the Zillow rent calculator helpful when it comes to finding a good property value price. Although these tools can be helpful, they should also be accurate.
Is Zillow Rent Calculator Accurate?
As mentioned above, the Zillow apartment rent calculator relies on public information to come up with property value prices. It is definitely true that this data is needed for these calculations, though it is not the only information needed. There are many more pieces of data that should be considered to come up with a competitive property value price that will get your income property rented.
Below, we will look at the top six reasons why the Zillow rent calculator is not as accurate as it should be. Users looking to use this tool are counting on the value that the calculator produces, but in reality, it does not account for many essential pieces of data needed to produce an accurate rental rate.
1. Not Up-to-Date
One of the biggest problems with this rent calculator is the fact that it is possible and likely not up-to-date when it is calculating your property value. Zestimate essentially relies on its own data to generate these prices. This means if its system isn’t up-to-date, neither will the rental value.
This can cause some issues for real estate investors. Not only do you need up-to-date information to price your rental property accordingly, but if it has been on the market for a while, then you will likely need to change that price a few times. If you are using Zillow rent, it is more than likely your rental rate will be outdated.
This will impact your rental property in a negative way. If your property is overpriced, it will never get rented. On the other hand, if your property is underpriced, you will miss out on the potential profit. When using Zestimate, it is a good idea to also use another platform to check the home value before committing to just what Zillow predicts.
2. High Error Rate
Zestimate is reported to have a fairly high error rate when it comes to generating property value and rental rates. This is the case for both on-market homes and off-market properties. On average, for properties on the market, Zestimate has an error rate of almost 2.0% and almost 7.0% for off-market houses.
This large inaccuracy is due to the fact that Zillow solely relies on its own information in its Zestimate algorithms. So, when it estimates the market value of a property and its number of bedrooms is listed incorrectly on Zillow, the predicted value is then incorrect as well.
This means you have to double-check your Zillow rent calculator to ensure that all of the information on your property is correct as that will estimate the most accurate rent. If you are in a rush or just relying on the calculator to be accurate, you might miss the fact that the calculator didn’t account for key information. This will negatively impact your profits.
3. Misinterpreted Key Figures
Another big problem users report is that the Zillow rent calculator takes into consideration key figures such as the date and price of the most recent sale in its calculations. Even though this information is helpful in some cases, it’s not often important and will actually throw off the entire estimated rent.
Comps are also considered to estimate rental rates. Zestimate will use comparable properties to generate your rental price. In some cases, these comps could have mistakes such as the price the property was actually rented for. If the tool then takes this comp to predict your value, your entire estimate will be wrong because of that one mistake in a key figure.
Related: What Are Real Estate Comps and Why Are They Important for Real Estate Investors?
4. Renovations Not Considered
An additional big flaw that throws off the accuracy of Zillow’s calculator is the fact that it doesn’t consider any renovations or upgrades that have been done to the property. Only if the new upgrades have taken all of the steps to become public records will they be included in the Zestimate predicted value.
Most investors or property owners renovate their locations to make the home more valuable. This is done so that when they rent out the property, they can then get more money for their listing. If you use this rent calculator to help generate a good rental price and the tool doesn’t even consider the upgrades, your value will look no different than before those renovations.
To someone who does not know that Zestimate doesn’t usually take renovations into consideration when predicting property value, they will be extremely frustrated when the prediction comes back no different than before. Zillow’s rent calculator is only helpful if every public record is up-to-date.
Related: 5 Home Renovations Worth Investing In
5. Different Turnover Rates in Each Location
Investors looking to use Zestimate in a rural area vs a city will likely have a completely different experience using the tool. This is due to the fact that the tool considers how many properties have been sold in that specific area. So, if you are investing in a city where properties are being sold daily, your Zestimate will account for that in its prediction. But, if you are renting out a property in a smaller town, your calculator will have much fewer data to work with to produce a rental value.
This impacts how accurate your rental rate will be. More homes rented out in a location provide more information that will help Rent Zestimate to come up with a correct value. Investors looking to use this tool for a property in a rural area might face an inaccurate rental price.
6. Changing Algorithm
The tool itself can cause problems in how it predicts home property value. When Zillow updates the rent calculator or changes the algorithm, then the way it generates home value prices changes even though the property didn’t actually change. This not only can be extremely confusing but very inaccurate.
This changing algorithm has caused huge problems for people using the Zestimate tool. The numbers that the tool produces have misled individuals relying on the app’s accuracy. This can cause investors to rent out their property for way under market value.
Users should always cross-reference home property value with at least one other source before deciding on an accurate cost. This will ensure that they are pricing their properties competitively in the housing market.
Other Ways to Determine Your Monthly Rental Income
As we discussed above, Zestimate is one way investors can estimate the rental price for their property. Though this tool can sometimes produce an accurate value, it often leaves out enough information and data to completely throw off its estimate. So in what other ways can investors determine monthly rent?
The Traditional Way
One of the best ways to calculate your monthly rent is to just do it yourself. Though it may be time-consuming, it is by far the most accurate as you yourself would collect all of the information you need. First, you’ll need to figure out your investment property’s current market value, which may be different from how much you bought it for. Next, you could set your monthly rate to 1% of your property’s current value.
But before you finalize the amount, look at the other rental properties—especially those with similar features to yours—in the area to see how much they’re charging. This will help you make sure that you will not over or undercharge.
Learn More: Real Estate Investing 101—How to Calculate Rental Income
A more efficient way to find your monthly rental cost is to use a platform similar to Zestimate, but one that is more accurate. Mashvisor offers a rental rate calculator you can trust. It has multiple sources for its data, such as the MLS database and Airbnb. This is to make sure it has enough information to make an accurate estimate.
All of its data is based on rental comps in the area. Unlike Zestimate, Mashvisor’s calculator uses an algorithm that uses all of its available sources to generate the needed value. We want to make sure that we provide our users with the most accurate rental price we can to ensure you will make money in real estate.
The Zillow Rental Manager attempts to help users come up with a projected monthly rental rent rate. Though this tool is accurate in some cases, there is not always enough information for the algorithm to be completely correct. It relies on public records as well as information uploaded to its own platform to generate these amounts. This causes the Zillow rent calculator’s estimates to be incorrect most of the time.
In this article, we discussed the top six reasons that can influence and affect how Zestimate works for each individual using the platform. Sometimes, public records and user-generated information are not enough data to effectively estimate the rental rate. That’s why we recommend using another site.
Investors looking to calculate an accurate rent rate should consider using Mashvisor. Aside from the rental income calculator, we also offer other tools such as a real estate heat map. All of our services use accurate data so you can count on Mashvisor to help you in your investment journey.
To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.